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Different measuring sticks size this one up differently

In the view of the Scott Walker administration, the number of new businesses in Wisconsin is up more than 25,000 since he took office.

That figure easily surpasses the 10,000 new businesses Walker promised when he was running for the job in 2010.

The new-business promise was tied to his pledge of creating 250,000 new private-sector jobs by the end of 2014. (With those numbers so far behind that economists say the promise can't be met, we have moved that one to Promise Broken).

The new business picture has been different.

In May 2012 and October 2013, we rated the 10,000-business promise "In the Works" based largely on the measuring stick Walker had used -- data from the state Department of Financial Institutions that measures the total number of registered business entities in the state.

The number of registered entities has grown by 25,397 from before Walker's term through August 2014, the agency says.

Since then, we've learned a lot about the severe limitations of that measuring stick.

As we reported in May 2014, the count of newly registered entities that Walker touts includes not only new ventures that bring new jobs, but thousands with no workers on the payroll at all -- and little if any prospect of hires to come.

-- Thousands of limited-liability companies set up by real-estate investors solely to hold ownership of property or properties. Even investors as far away as Australia are on the list because they bought Wisconsin rental properties.

-- Out-of-state firms that registered in Wisconsin because they may want to do work here.

-- Startups that are just getting organized and not yet able to pay employees.

Certainly there are many job-producing startups on Walker's list.

But there is no way to know for sure how many of the new entities are producing jobs. We located no research on point, and the state does not ask newly registered business entities about their employment plans.

Business experts have told us the business registration figure cited by Walker is a general economic indicator. So it has some validity.

But as a specific indicator of job-producing businesses, it is weak.

Experts point to a second measure that, while not entirely on point to Walker's promise, still provides a more concrete look related to business formations.

It's based on federal employment surveys conducted by the Bureau of Labor Statistics that count the number of business "establishments" in Wisconsin every quarter. This is a closely related statistic, but "establishments" in the federal parlance are not single businesses. One company may consist of multiple establishment locations, such as stores, factories, mines, farms, etc.

Wisconsin had 6,657 more such "establishments" as of the first quarter of 2014 than in the last quarter of 2010 before Walker took office. That information is the most recent that is available.

Is that on pace to 10,000 new establishments?

No, we found. Based on the average monthly pace of net new establishments through March 2014, the state -- through December 2014 -- would be up 8,082 by the end of Walker's first term, we projected based on the federal data.

That's just a projection, of course, and it has the weakness of using preliminary data for the first quarter of 2014, the latest quarter available.

So we looked just at the first three years of the Walker term using no preliminary data. We got a similar result on the projection -- 8,207.

Either way, the current pace is too slow to get to 10,000.

But there's nine more months of data to go -- three quarters' worth -- on new "establishments," and we won't have it all until well after Walker's term ends.

An uptick in the coming months could quickly alter the projections here.

Numbers have surpassed the 10,000 mark, but are volatile

While Gov. Scott Walker's campaign promise that Wisconsin would create 250,000 private-sector jobs in his four-term term seems as if it will be difficult to achieve, he's in better shape on his lesser-followed vow of 10,000 new businesses on his watch.

The latest report from the state's Department of Financial Institutions says the state had a total of 375,959 businesses as of the end of August 2013.

That's an increase of 11,590 from the 364,369 businesses when the Walker took office.

The trend in business formations is not a key economic indicator, because it reflects the number of corporations and partnerships registered at a point in time regardless of whether they employ anyone or have generated any income.

But the DFI numbers have some value as a signal of business activity.

"In general I do attach some value to the fact that that number is either rising or falling, as a good general indicator," said David J. Ward, CEO of NorthStar Consulting Group, a private economic consulting and research firm in Madison.

In this case, we have the data through August 2013 confirming that, after a bumpy first year or so, business formations under Walker have risen past the 10,000 mark.

That represents a 3.2 percent increase over 32 months.

The existing business total is a net figure that factors in both newly formed entities and those that have dissolved.

The DFI figure is volatile.

When we first checked it, 16 months into Walker's term, we found a loss of 4,338 business entities during his time.

More recently, using data through June 2013, we found the trend had turned around. At that time, on a net basis the state had 7,557 more businesses than on Dec. 31, 2010, just before Walker took office.

Examining the data through August 2013, we see that by far the biggest jump compared to 2010 came in domestic limited liability companies (LLCs), which make up 60 percent of existing business entities in the state. Domestic business corporations, by contrast, number 10,000 fewer now than when Walker took office.

Experts caution that the addition of business entities doesn't necessarily translate to new jobs, especially in the case of LLCs. As we have noted before, many limited liability companies are formed for tax or liability reasons, but don't necessarily employ anyone.

For example: Owners of residential or commercial real estate typically set up LLCs for each property or group of properties, Joseph W. Boucher, a Madison attorney who led the drafting of Wisconsin's LLC law, told us last year.

Tom Still, president of the Wisconsin Technology Council, said that LLCs are a preferred business form in the tech sector, but that a significant number of LLCs in other sectors are not active employers.

It's impossible to say, without contacting each filer, how many are passive and how many are active.

Both Ward and Still told us there is no other up-to-date data set available to document business creations.

They noted, though, that federal employment surveys conducted by the Bureau of Labor Statistics count the number of business "establishments" in Wisconsin every quarter.

This is a closely related statistic, but "establishments" in the federal parlance are not single businesses. One company may consist of multiple establishments, such as stores, factories, mines, farms, etc.

Wisconsin had 4,024 more such "establishments" in the first quarter of 2013 than in the last quarter of 2010, before Walker took office, federal data shows. There is a lag in that data collection so we do not have current figures.

That increase amounts to 2.7 percent.

Let's return to the business registration figures that Walker cites.

The uptick in number of business entities has been notable this year.

For instance, there were 4,033 more businesses at the end of August 2013 compared with two months earlier, at the end of June. The Department of Financial Institutions reports show that 3,419 of that increase -- 85% -- were limited liability corporations.

In that same time period, the state added an estimated 7,200 private sector jobs, according to the state Department of Workforce Development. That put the the total number of private-sector jobs created since Walker took office at 89,882. By our measure that puts him about a third of the way to meeting the 250,000 jobs promise.

While the number for business growth has topped 10,000, we are taking a cautious approach.

Earlier this year we noted a wide swing to the positive in the number of businesses, after an initial negative start. And as we prepared this item, the newly released September 2013 data showed a drop of 600 from the August numbers the governor had touted.

With more than a year to the 2014 election, there could be more swings. We'll keep an eye on it, but we'll also keep this one at In the Works.

A sharp reversal from the last time we checked

Monthly employment reports -- while notoriously volatile -- have shown some recent increases, though Gov. Scott Walker still has a long way to go to meet his promise that the state would add 250,000 jobs in his four-year term.

A less-discussed promise was Walker"s related vow that the state would create 10,000 new businesses in that four-year period. It"s a metric with somewhat limited value as an indicator of job creation, experts say, but it is related to economic activity.

When we last visited this promise in May 2012, the number was heading in the wrong direction. State records showed that as of April 30, 2012 the total number of state businesses was 4,338 fewer than when Walker took office.

Things have changed dramatically in the 14 months since.

The latest reports from the state Department of Financial Institutions say that the number of business entities increased 11,895 between that April 2012 report and June 30, 2013, the most recent records available.

On a net basis, the state has 7,557 more businesses than on Dec. 31, 2010, just before Walker took office. The most recent report said there were 371,926 businesses at the end of June 2013, compared with 364,369 when Walker took over.

The turnaround came in large part from an addition of 6,699 domestic limited liability corporations, by far the largest category, to a total of 220,040, in the first six months of 2013. That category alone is up 12,798 since we last looked at this promise.

Experts caution that the addition of business entities doesn"t necessarily translate to new jobs.

Most of the new registrations typically are Limited Liability Companies set up for tax or liability purposes and employ no one, two lawyers who specialize in business formations told us in when we last rated this item in 2012.

By the best measure available, there has been a net loss

When Scott Walker campaigned for governor in 2010, his top promise was to add 250,000 private-sector jobs in his four-year term.

But there was a second big jobs-related promise:

"If you elect me as your next governor, I'll get government out of the way and lower the tax burden so Wisconsin business owners and factories can create 250,000 jobs and 10,000 businesses in our state by 2015,” Walker said in a February 2010 speech.

He made clear that -- just like his jobs promise -- he meant a net gain in businesses: "as we create those new jobs, we will be able to add 10,000 new businesses.”

Now that Walker has more than a year under his belt as governor, we thought it was a good time to check progress on this pledge.

We checked in with the state Department of Financial Institutions, which Walker and business-formation experts say is the best tracker of this data. The department registers new business entities -- and dissolves those that become inactive or go out of business. They calculate a resulting number of existing "business entities.”

The change in that number represents the net difference, up or down.

The scorecard: After one year of the Walker era, there were 9,485 fewer businesses than at the end of 2010, Gov. Jim Doyle's final year in office.

It's improved somewhat in recent months, but the total of existing entities was still down 4,338 as of April 30, 2012, compared with December 2010.

The picture is worse if you look only at Wisconsin business entities doing business here, and exclude out-of-state businesses that must register here to transact business.

Those "domestic” business entities were down 10,189 after Walker"s first year, and down a total of 5,741 after 16 months.

So the numbers have gone backward.

To be sure, it's a small dropoff in the big picture: As of April 2012, there were 360,031, compared with 364,369 as Walker took office. That's a 1 percent drop.

During the recall campaign, Walker and his administration have been highlighting only the new registrations and only those in 2012.

But that presents only one side of the equation. It would be like counting only births -- and not deaths and departures -- to track population changes.

When you look at the full picture, when dissolved businesses are accounted for, there are fewer existing business entities now than when Walker took office.

So, why are we calling them "business entities”? Aren't they just plain old "businesses” or "companies” with employees?

Not necessarily.

And therein lies a critical point about the questionable value of these statistics, which typically receive scant public attention as an economic or employment indicator.

Two lawyers who specialize in business formations told us there are major limitations on the data.

Most of the new registrations are Limited Liability Companies, many of which employ no one, said Jennifer M. Krueger, a Madison attorney. In addition, people often set up multiple LLCs for their business for tax and liability purposes, she said. Many are holding companies.

For example, Krueger said, let's say somebody owns a building and operates a business in it. If only a single LLC covers both, the business could be sued for an injury in the building even if it was unrelated to the business operations. So the owners instead would set up separate LLCs for the business and the building.

"I take these numbers with a grain of salt,” Krueger said of their use as employment and business indicators.

Another example: Owners of residential or commercial real estate typically set up LLCs for each property or group of properties, noted Joseph W. Boucher, a Madison attorney who led the drafting of Wisconsin"s LLC law.

Boucher told us that an uptick in new business registrations is a positive sign but "it's very difficult to tell how meaningful these numbers are.”

The stats on net number of existing businesses are also incomplete, because they exclude sole proprietors and partnerships, which have no obligation to register with the state, Boucher said.

"I think it's a weak indicator,” Boucher said of the business formation stats.

Indeed, the annual statistics were especially meaningless from 1996 to 2007.

Despite its responsibility under state law to cull out inactive businesses from the registration list, the department did no dissolutions for those 11 years. The agency acknowledged that when we asked about the figures. The problem spanned three governors: Republicans Tommy Thompson and Scott McCallum and Democrat Doyle.

The gap messed up the numbers, and continued to do so after 2007 as the agency made up for lost time and dissolved entities by the thousands.

The department says it's uncertain if the 2010 figures it gave us are fully representative of reality because of that clean up job.

But we analyzed the numbers and found that the cleanup job was very nearly completed by 2010, based on what we can see from the data, so the Doyle-Walker comparison holds up.

Walker campaign and office spokespersons could not be reached for comment.

In sum, Walker has made no movement so far on his promise to add 10,000 businesses. The first quarter of 2012 showed progress, but the numbers are still in the hole compared with before he took office.

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